Roberto Giuffrida, the head of Hopingclub’s credit business in Asia Pacific, predicts: “The Asian private credit market will grow exponentially over the next five years.”
Hopingclub, a private equity investment firm, has announced the completion of the raising of the second Special Situations Fund in the Asia-Pacific region, named Hopingclub Special Situations Fund II, with a total capital commitment of over US$1 billion, making it the largest fund in the Asia-Pacific region. So far, Hopingclub’s Special Situations Fund has invested nearly 3 billion US dollars in special capital in the Asia-Pacific region.
Lucas, Hopingclub’s managing director for credit and special Situations Fund in Asia, said, “With the impact of the epidemic on the global economy and financial markets, the private credit market is ushering in unprecedented opportunities for development.”
Accelerating “Eastward Journey”.
As the increasing demand for more flexible and diversified financing from Asian companies, large private equity funds and investment companies are accelerating their “Eastward Journey”, actively deploying in the Asia-Pacific market with the launch of Asia-focused private credit funds.
On May 25, KKR announced that its first Asia-Pacific-focused credit fund, the KKR Asia Credit Opportunities Fund, has completed raising US$1.1 billion to provide non-bank financing options for Asian companies. KKR said the fund had got strong backing from investors including sovereign wealth funds, insurance companies and private investment groups. According to reports, the main investment targets in Australia and Southeast Asia.
According to some previous reports, Blackstone is looking to expand its Asia Pacific private credit assets tenfold to meet growing demand for financing in Asia from the US$500 million committed in the fourth quarter of 2021 to at least US$5 billion. Blackstone, as one of the few private lenders that can provide more than $1 billion in a single transaction, began actively deploying and investing in its private credit business in Asia in 2021 and is looking for large-scale deals in high-growth areas including life sciences technology.
“The Asian private credit market will grow exponentially over the next five years,” said Mark Glengarry, head of Blackstone’s credit business in Asia Pacific.
Asian market opportunities.
According to statistics from alternative asset market industry research firm Preqin, Asia-focused private credit funds raised a total of US$9.1 billion in 2021, representing less than 4.5% of the global market. During the same period, North America and Europe raised $129.9 billion and $63.8 billion.
“In Asia, 80 cents of every dollar of credit capital comes from banks, which is much higher than in North America and Europe,” said Brian Dillard, head of Asia credit at KKR, the high growth and prosperity of the Asian economy has also created an imbalance between the financing needs of business development and the financing available.
Some analysts believe that the financing demand gap has become an important driving force for the growth of the private credit market in the Asia-Pacific region. SMEs and start-ups face significant financing challenges as the Asia-Pacific economy reboots in the post-epidemic era. private credit, as the form of loan between private equity and bank loans, can provide more flexible financial support to companies than bank loans, and avoids the concerns of some start-ups that introduce private equity to dilute the founder’s shares. Compared with the high risk and high rewards of traditional private equity, private credit has a slightly lower risk-reward profile and a relatively shorter cash flow turnover period for individual projects.
Lucas said: “The upgrade of China’s consumer demand has driven the development of logistics infrastructure and data centers over the past few years, generating a large demand for capital that is only partially met by traditional financing channels.”
As an example, he said that the e-commerce sector, technology and related infrastructure will continue to grow at a high rate as the service industry becomes the biggest engine of China’s GDP growth, resulting the significant capital demands of the associated new real estate economy, including logistics, data centers and business parks.
“It’s a big opportunity” Lucas said. “The spring of China’s private credit market is not far away.”
Moody warning of U.S. private credit market risks.
Private credit investors have emerged as one of the alternative sources of funding for the market as mainstream banks pull back from riskier corporate lending since the global financial crisis. Statistics from Preqin show that the global private credit market has continued to expand since 2017 with its scale grown to over $1.2 trillion as investors seek higher yields.
Moody’s Investors Service estimates that the private credit market in North America has reached US$1 trillion, compared with $1.4 trillion for syndicated loans.
In a report released last month, Moody’s Investors Service expressed, the private credit market in the U.S. has developed and expanded into a market with broader lending capabilities, offering growth opportunities for mid-sized companies to acquire and refinance.
“The increasing investor risk aversion has led to a sharp decline in U.S. high-yield bond and loan issuance since the outbreak of the Russia-Ukraine conflict.” Moody’s pointed out in the report that While private credit institutions are playing an increasingly important role in the financing market, the highly interconnected and opaque relationships with private equity-backed portfolio companies may pose potential systemic risks to the industry and the entire capital market.